Broad market index tracks a large number of securities and reflects the performance of a sizable financial market. Good examples are the S&P 500 index, which tracks 500 large US companies, and the Russell 2000, which tracks 2000 small companies. There are many indices both foreign and domestic that may be suitable for an investor’s financial goals. The most popular is the S&P 500 Index.
Investopedia defines The Standard & Poor's 500 Index (S&P 500) as an index of 500 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. It is seen as a leading indicator of U.S. equities and a reflection of the performance of the large-cap universe. The S&P 500 is a market value-weighted index and one of the common benchmarks for the U.S. stock market.
Investopedia also explains the volatility index related to the S&P 500 Index known as The VIX, the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk, often referred to as the "investor fear gauge."
Using the S&P 500 Index as the underlying fund in life insurance contracts called indexed universal life has added a couple of distinctive attributes to the use of indices and especially the S&P 500 Index. The crediting account doesn’t permit losses, so it has a hedge against negative markets. The trade off on these contracts is that the policy owner doesn’t participate in dividends. That being said, the policy expense loads are debited against the crediting account and premiums paid, so in effect the contract could suffer losses. But that’s the price of most financial products, i.e. expense loads.
Contributions from the book Index Investing in this press release are used with permission from Light Bulb Press.